If you're a long-term Dexcom (DXCM 0.10%) shareholder, congratulations. A $1,000 bet placed on this developer of blood sugar monitoring devices a decade ago is worth nearly $30,000 today.

Sadly, past performance doesn't guarantee future results. If anything, Dexcom's success to date makes continued growth at its previous pace extra challenging.

Shares of Dexcom recently dipped a couple of percentage points after the company shared results from the first three months of 2023. Is the stock's recent slip a sign that investors should avoid this former highflier or is it an opportunity to buy a great stock at a bargain price?

Let's weigh Dexcom's strengths against its weaknesses to see if it's still a smart buy.

Reasons to buy Dexcom stock now

Dexcom's stock price didn't respond well to management's latest earnings call, but the investment bankers who were listening in were more than satisfied. At least half a dozen Wall Street analysts raised their price targets on Dexcom stock.

Dexcom's new consensus price target implies a potential gain of 16% over the next 12 months if the rest of the market sees its constant blood-glucose monitor (CGM) business in the same light. This isn't the rate of return investors are used to with this stock but there's a lot less risk now than there was 10 years ago.

In February, Dexcom launched its next-generation CGM device, called the G7, with help from a Super Bowl commercial. Shortly after that, a positive coverage decision for G7 from the Centers for Medicare and Medicaid Services (CMS) helped make the first weeks of its launch a success.

Total first-quarter sales in the U.S. grew 17% year over year and will likely accelerate later this year. According to management, nearly 1,000 healthcare providers who had never prescribed a Dexcom device started patients on the G7 during the first quarter.

In April, CMS expanded CGM coverage to diabetes patients using all types of insulin, plus non-insulin-using patients with a history of hypoglycemic events. Previously, millions of Americans with type 2 diabetes who use basal insulin weren't eligible for CGM coverage.

Their new eligibility could lead to a surge in demand from folks too young for Medicare, too. Private insurers don't necessarily need to follow CMS' lead but they usually do.

Reasons to remain cautious for now

Dexcom isn't the only company with a fancy new CGM on the market. The Food and Drug Administration granted clearance to FreeStyle Libre 3 from Abbott Laboratories (ABT -0.03%) last May so the giant healthcare conglomerate's new CGM has a long lead on Dexcom.

Abbott recently reported first-quarter FreeStyle Libre sales that reached $1.2 billion worldwide. This included a gain of nearly 50% year over year in the U.S. market.

Dexcom is expecting its first year with G7 in the U.S. to be somewhat muted. Management's revenue outlook for 2023 implies growth between 17% and 21% this year.

Dexcom's stock price has heaps of growth already baked in. The stock is trading at sky-high multiples of 149 times trailing earnings and 17.7 times sales.

A very risky bet

With expectations already high, investors who buy at recent prices have little to gain if the G7 device simply succeeds. The stock's valuation is so high right now that it will need to grow CGM sales faster than Abbott has to justify its valuation.

Dexcom's near-term expectations for G7 sales appear way below the explosive growth the stock market is expecting. It's probably best to watch the G7 launch from a safe distance until the stock's valuation returns to a sensible level.